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COUP earnings call for the period ending April 30, 2018.

Contents:

Prepared Remarks

Questions and Answers

Call Participants

Prepared Remarks:

Operator

Please stand by. Good day, ladies and gentlemen and welcome to the Coupa Software first quarter Fiscal Year 2019 earnings release conference call. At this time, all participants are in listen-only mode. At the conclusion of our prepared remarks, we'll conduct a question and answer session. If you would like to ask a question, you may press *1 on your touchstone phone at any time. If anyone should require assistance during this conference, please press *0 on your touchstone phone at any time. As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Miss Nicole Noutsios, Investor Relations. Miss Noutsios, you may begin your conference.

Forward-looking statements involve risks, uncertainties, and assumptions that are described in our most recently filed 10-K. These forward-looking statements are based on a belief and assumptions today and we disclaim any obligation to update any forward-looking statement. If this call is replayed after today, the information presented may not contain current or accurate information.

We'll also present both GAAP and non-GAAP financial measures. Reconciliation is included in today's earnings release, which you can find on our IR website. A replay of this call will be available and if you prefer to access a replay via phone, you will find information in the earnings release. Unless otherwise stated, growth comparisons are against the same period of the prior year.

With that, I'll turn the call over to Rob.

Rob Bernshteyn -- Chief Executive Officer

Hello, everyone, and thank you for joining us. We kicked off Fiscal '19 by delivering strong Q1 financial results, including 40% year over year subscription revenue growth, positive non-GAAP operating income, and positive free cashflows. On the business front, we expanded our customer base by adding new blue chip and high growth customers and we had several marquee customer go lives.

We also just hosted our largest annual Coupa Inspire in May with nearly 2,000 customers, prospective customers, partners, industry analysts, and employees in attendance, and many more joining us online. With the Inspire conference on the horizon, we saw several meaningful new customer deals close earlier than expected at the end of the quarter.

Last year, we outlined our path to achieving $1 billion of revenue in a $37 billion total addressable market. Now, of course, market trends are a factor in helping fuel our growth. Coupa recently commissioned a study by the Economic Intelligence Unit entitled The Strategic CFO in a Rapidly Changing World.

The study polled more than 500 CFOs and senior finance executives and revealed that 60% of finance executives lack complete visibility into the transactions within their organizations and 76% think that leveraging new technologies or improving processes would enable them to better execute their corporate finance strategy. I encourage you to download the report on our IR website. Empirical evidence from studies like this show that we've only just scratched the surface in this industry that we call business spend management. In our view, those no limit on how far we can go, no boundaries, and no length.

Our cumulative spend under management has reached $747 billion and we expect to surpass $1 trillion this fiscal year. No one else in our market has this magnitude of transactional spend data in one place, giving us a distinct competitive advantage, by allowing us to deliver huge value to our customers through community intelligence.

We are helping customers make accelerated data-driven decisions through solutions such as Risk Aware, which monitors hundreds of data sources to help customers reduce supply chain risk, and Risk Guard, currently in early access, which analyzes spend transactions to help detect potential fraud, and Commodity Insights, which helps businesses identify top suppliers for critical commodities, spend benchmarks and makes other prescriptive recommendations to maximize value.

Now, along with the strength of our community intelligence solutions, Coupa Release 21 of our business spend management platform contains many other exciting new solutions and capabilities. Coupa Inventory is now voice-activated for early access subscribers. Using custom Alexa skills built on top of Amazon's Lex technology, users can locate items, adjust inventory balances, and reorder stock. Coupa Open Buy has expanded to include supplier items and pricing content from additional early access suppliers, such as Imperial Supplies, Office Depot, and Staples, and others.

Our platform continues to deliver more user-centric experiences to increase productivity, such as approval cycle times, which empowers users to speed up or slow down the approval process by comparing their individual performance to peer company performance. Other capabilities include automatic tax coding for supplier invoices, contract creation from Coupa, sourcing optimizing, and support for a myriad of other company-specific business spend management processes.

Many of these new product offerings are supported by the guidance of our rapidly growing customer community. This community includes our executive advisory board, which currently includes members from Capital One, Airbus, Caterpillar, Pearson, MasterCard, and other customer organizations representing a diverse array of geographies, industries, and company sizes. These executive advisor board members play an important role in helping us continually strive for excellence, which is, of course, one of our key core values.

Now, let's move on to new customers in Q1. For example, Ingersoll Rand selected Coupa's sourcing, procure to pay, and several power applications based primarily on Coupa's proven track record around successful and rapid employee adoption in large global organizations. Some of the other customers, valued customers we added in the quarter included First American Financial Corporation, Assa Abloy, COMPAREX AG, Fastweb, Just Energy, Evotec AG, Renew Financial, Simons Foundation, Klockner & Company, and a local software company, Snowflake.

Not only are we closing new customers, but we're taking them live and we're taking the live quickly. After signing a new customer, we go directly into implementation with the goal of a fast go live. Rolls Royce recently went live in eight countries with Coupa sourcing and procure to pay in phase one of a global procurement transformation initiative. Key rollout areas in this phase included this Coupa supplier network, catalog content, and CXML integration, and business webforms.

Blackrock went live with the first phase of its global Coupa rollout in Q1. Blackrock's primary goal with Coupa is around better control from pre-approvals, standardized purchasing activities and increased spend under management. Blackrock is also looking to provide a more user-friendly solution for its employees and to increase efficiency through streamlining and automation. We look forward to continued success and value creation with these customers and so many more in the days, weeks, months, and quarters to come.

In this quarter, we were proud to be named as a leader in two IDC MarketScape reports. The IDC MarketScape Report for worldwide SaaS and cloud-enabled sourcing applications as well as for procure to pay applications. We thank them and those who continue to understand our vision as we continue our efforts to change the way things are done in business spend management.

Now, as I shared before, our company core values are a key driver of our continued success. We've also been honored to witness our customers and partners often exemplify these values as we continue to build out our rich community of like-minded individuals. Last month, professionals from around the world attended Inspire to collaborate and innovate around our mutual business spend management agenda. At this conference, we were proud to honor certain customers with Coupa BSM Impact Awards for exemplifying our three core values of ensuing customer success, focusing on results, and striving for excellence.

Our winner for ensuring customer success was Donna Trowbridge, Chief Procurement Officer at DBS Bank, the largest bank in Southeast Asia. Donna embraced this value with the rollout of Coupa, temporarily stepping out of her executive role to focus full-time on the implementation. Donna was able to achieve her vision of implementing a highly adopted global deployment of Coupa in record time. In only six months, DBS achieved 92% digitization of the spend going through Coupa, saved time spent on procurement by 70%, and reached 99% electronic purchase orders for all spend with Coupa.

Our winner for striving for excellence was JR Miller, Senior Vice President of Finance at the Leukemia & Lymphoma Society. JR successfully convinced the new management of the opportunity with Coupa and led the rollout across 56 chapters located in the US and Canada. His work saved Leukemia & Lymphoma Society over $6 million in 12 months, which the organization has reinvested into its core mission of helping save the lives of more than 1.2 million individuals affected by blood cancer each year.

At this year's Inspire, executives discussed on stage how they've achieved their goals by deploying additional modules at a much faster pace than anticipated. To date, Airbus has decreased their order approval time from 27 days to 3 days, allowing their buyers to focus on more strategic initiatives. They have connected three ERPs and five third-party systems and over 1,500 users with visibility of over 2.3 billion in spend transaction to date. Accenture's steadfast focus on results approach helps make our customers successful. We look forward to continuing and growing that strategic partnership.

So, in summary, we started the fiscal year with strong Q1 business and financial results, leaving us well-positioned to achieve our objectives as we move forward. Let me now hand it over to Todd for a detailed breakdown of our financials and guidance. Todd?

Todd Ford -- Chief Financial Officer

Thanks, Rob, and good afternoon, everyone. In Q1, we continued to execute against our business plan and demonstrated significant progress toward the mid and long-term financial targets that we set forth at our analyst day in December. Total revenues for the quarter grew 37% year over year at $56.4 million. Subscription revenues were $50 million, up 40% year over year and comprised 89% of total revenue. Professional services and other revenues were $6.4 million.

I would to highlight that Q1 was the first quarter where all revenues for professional services were based on professional performance, thus completing our transition from recognizing revenues upon customer go live. During this transition, we also achieved our commitment to reach break even for professional services margins. Moving forward, we expect professional services margins to trend from breakeven to positive 10%, but it's also important to note that we expect quarterly results to fluctuate as we continue to scale.

Our total non-GAAP operating income for Q1 was positive $317,000.00 or 1% of revenue compared to negative 11% of revenue in the year ago period. Total calculated billing for the trailing 12 months were $235.3 million, up 41% year over year. Total deferred revenue of quarter end was $121.9 million, up from $88.6 million in the previous year.

In February, we adopted ASC 606 and as noted on our prior earnings call, we incurred a one-time write-off that negatively impacted Q1 calculated billing by approximately $2 million. This impact was offset by strong bookings near the end of the quarter as we headed into Inspire, as Rob noted earlier.

Let's now turn into operating expenses and results of operations. Our first quarter non-GAAP gross margin was 72% compared to 71% a year ago. Non-GAAP gross margin from subscriptions was 81% and non-GAAP gross margin from professional services and other was 6%. We are continuing to invest in all facets of our business while delivering on our commitment to show increased leverage in our financial model. In Q1, we delivered a non-GAAP net loss of $537,000.00 compared to a non-GAAP net loss of $4.5 million a year ago.

Now, moving on to cash and cash flows. Cash at quarter end was $430 million, up from $413 million at the end of Q4. Free cashflows were $11.5 million for the first quarter and $20.6 million or 10% of revenue on a trailing 12-month basis. We defined free cash flows as operating cash flows less purchase and property and equipment.

Now, turning to guidance -- For the second quarter, we expect total revenues to be between $233 million and $236 million with non-GAAP gross margins in the range of 71% to 72%. We expect non-GAPP. That concludes our prepared remarks. Now we'd be happy to take your questions. Operator?

Questions and Answers:

Operator

Well, thank you, Mr. Ford. Ladies and gentlemen, if you have a question, please press *1 on your touchstone telephone. Again, that will be *1 for questions. Our first question comes from Jesse Hulsing with Goldman Sachs.

Kevin Kumar-- Goldman Sachs -- Analyst

Hi, this is Kevin Kumar on for Jesse. Thanks for taking my question. Question on how your strategy around direct procurement is evolving -- are you seeing customers interested in using Coupa for direct? Where do you feel you need to add features or functionality to be a market leader here as you are in indirect?

Rob Bernshteyn -- Chief Executive Officer

Sure. We've broken this question down in the past on these calls. The reality is it's not as simple as direct and indirect. They sound much parallel to each other that they make up the whole world in spend. The reality is there's a whole host of use cases underneath each of those constructs.

Today, we support a whole host of use cases around direct procurement for customers and we're managing hundreds of millions of dollars in direct spend for customers along many of those use cases. As we continue to evolve the offering, we keep looking for the types of 80-20 capabilities that we can build into the platform and then make highly configurable for our customers. So, you'll continue to see us evolve and take on more use cases around direct and indirect, but it's an evolutionary process rather than a binary process.

Kevin Kumar-- Goldman Sachs -- Analyst

That's helpful. Then question on sales and marketing growth. It looks like it decelerated this quarter. Can you comment on that and how hiring plans are trending?

Rob Bernshteyn -- Chief Executive Officer

Sure. We look at this every quarter now for 37 quarters and very carefully manage our sales and marketing expenditures, both sales and marketing, obviously -- discretionary marketing, marketing headcount, sales headcount, and discretionary sales expenditures, and they'll ebb and flow a bit, but we'll stay pretty much close to our three pillars of the business, obviously on revenue growth, sales efficiency, and scale to the bottom line. There's nothing statistically significant to note in terms of being off of our hiring planes. We're very much on plan with everything that we plan to do over the past quarter and going into this coming quarter as well.

Kevin Kumar-- Goldman Sachs -- Analyst

Got it. Thanks for taking my questions.

Rob Bernshteyn -- Chief Executive Officer

You bet.

Operator

And our next question comes from Raimo Lenschow with Barclays.

Raimo Lenschow -- Barclays -- Analyst

Hey, congrats and, again, welcome to the great performance on the video during the conference. Two questions from me. Rob, can you talk a little bit about the SI channels? So, one of the main takeaways I had at the conference is they are pretty excited building practices. Where do you see the different SIs in terms of where they are? What's in the pipe still coming in terms of getting people certified, etc.? And I had a follow-up for Todd.

Rob Bernshteyn -- Chief Executive Officer

Sure, Raimo. No problem. So, in terms of our SI strategy, this is a strategy that, as you know, and I think a number of others that have followed us for some time understand this is an evolutionary strategy that we've had now for more than seven years of building an army of systems integrators, certified consultants that know how to implement Coupa and do it in a way that drives measurable recurring value for our customers so we can have the opportunity to keep them forever.

We began with boutique consultancies in the early days and then graduated our way into working with the likes of Accenture, KPMG, Deloitte, and others, over the last few quarters and frankly the last couple of years, particularly in the last few quarters, we've seen much more alignment with us around setting revenue targets around Coupa for each of these businesses. So, the number of folks they need to have certified and the kind of professional services revenues they'd like to deliver in 2018, 2019, even going out to 2020.

And in the cases of all three of those systems integrators, there is real growth being planned on their behalf, which we think will work very nicely in unison with our sales and marketing growth, geographic expansion, product footprint expansion and the kind of dominance we want to have in the market. So, that continues to develop very nicely and it's very encouraging in particular to see business plans with tens of millions of dollars of professional services that they're anticipating to make around Coupa.

Raimo Lenschow -- Barclays -- Analyst

Perfect. Then Todd, quick question, on cashflow Q1 was particularly strong, so well done -- any special factors you want to call out here?

Todd Ford -- Chief Financial Officer

It was really based upon strong Q4 billing. Our collections team has done just a phenomenal job. Rick heads it up. So, special shout out to him for doing a killer job. There's a bit of seasonality, so the Q4 strong billing, the connections in Q1, and then just continued execution on the business. So, I think it was a job well done by all parties involved.

Raimo Lenschow -- Barclays -- Analyst

Okay. Hey, well done. Congrats from me as well.

Operator

And next will be Stan Zlotsky with Morgan Stanley.

Stan Zlotsky -- Morgan Stanley -- Analyst

Hey, guys. Good afternoon and thank you, again, for taking our questions. What I'd like to start with is the Gartner Magic Quadrant for 2018, which was released a little bit ago. You guys had very strong, again, very strong positioning and that's even before things like your services was included in the evaluation of the product. If you were to compare Coupa 2018 versus the year before, what do you think would be some of the bigger drivers of the positioning within the MQ and then a quick follow up?

Rob Bernshteyn -- Chief Executive Officer

Sure. Stan, as I've shared many times in the past, we really view internally here -- I speak freely on behalf of nearly a thousand colleagues out here that the greatest competition we have is ourselves. We look at these reports from the analysts and certainly, we engage with them to provide what information they need to complete these reports as a necessary thing they need to do. We look at this as very different.

We have an opportunity to completely integrate in the broad business spend management market, where we're pushing on every possible vector that matters to our customers. They care about product footprint that's actually going to get implemented and drive value for them.

That's why we continue to incorporate more and more use cases, including capabilities around services, capabilities around direct, capabilities around inventory, capabilities around procurement and invoicing and expenses and supplier information management and probably most importantly the community intelligence they're both bringing to market that our customers are engaging with.

So, we're really in a process of redefining a much broader category than is being seen by some of the traditional procure to pay or source the contract type analyst reports. So, what I'd like to see and I think we're working to see in the coming years is a complete redefinition of what is part of business spend management and we're working very hard in every area of our businesses, from product to services to best practices to consultancies to work with us to analytics and cross-company intelligence to be the leader of that much broader market.

So, we look forward to seeing reports on that in the coming years.

Stan Zlotsky -- Morgan Stanley -- Analyst

Got it. Maybe a quick one for Todd -- billings in the quarter were significantly better than we in consensus expected. Is there any benefit that we need to keep in mind from maybe 806 pulling forward or overall maybe some pull forward from the quarter ahead of the conference? Thank you.

Todd Ford -- Chief Financial Officer

There are three components of billing. One is obviously new business. Steve and the sales team executed really well across all fronts in Q1. As you know, Q1 is usually the slower quarter out of the year for us.

The second piece is obviously professional services. Given that this was the first quarter where everything was recognized on proportional performance, I would say the team did a really good job with professional services. Part of that came out of strong Q4 and the implementations that kicked off in Q1. So, the professional services team did a fantastic job.

Then the third component from a billings perspective is renewals. Our gross renewal rate was above 95% again for the second straight quarter. Our dollar-based expansion rate was slightly above 110. So, renewals also came in well.

With respect to the conference, we did see some deals that were originally slated for Q2 or that we thought would come to Q2 came up into Q1 with some people that wanted to come into Inspire as customers and also good execution by our sales teams. That's really the components of billings and how we executed in Q1.

Stan Zlotsky -- Morgan Stanley -- Analyst

Thank you so much.

Operator

And then next will be Ross MacMillan with RBC Capital Markets.

Ross MacMillan -- RBC Capital Markets -- Analyst

Thanks so much and my congratulations as well. Rob, jut for you, one of the things we picked up at Inspire was power apps and the adoption curve there seemed to be accelerating. I was just curious would you concur with that and be -- which of the power apps are you seeing the most traction with, initially?

Rob Bernshteyn -- Chief Executive Officer

Sure, Ross. First off, we're definitely seeing additional uptake of the power user capabilities around their transactional platform. In fact, one of the states we shared is that the average number of modules purchased has gone up from three to four since Inspire last year. Another interesting statistic is that more than 50% of new revenue that's coming in now for us is outside of the core procurement capability.

So, it just tells you and it tells us, obviously, that customers are buying into the Coupa platform, the business spend management platform. We're seeing this continued shift from the early adopters to the early majority stage, where a few years ago we were seen as -- the safe choice was really to do nothing, perhaps. Today, people are starting to realize that the safe choice as well as the smart choice is to partner with us in so many of these situations.

Now, it's a whole host of power user modules. It could be supplier information management. It could be sourcing optimization. It could be greater capabilities around contract lifecycle management. The bigger story here is the buying into the platform.

For that reason and as support for that, our average new recurring revenue continues to go up, quarter in, quarter out, has done so virtually every quarter over the last 37 questions, if not every quarter. So, customers are seeing this as a new business spend management platform that includes all transaction capabilities, procurement expense and invoicing and continually developed or acquired and integrated power user capabilities.

Ross MacMillan -- RBC Capital Markets -- Analyst

That's super helpful. Thank you. Todd, I just wanted to go back on to the adjustments. We had the $2 million write down. I presume that would -- have been about a $500,000.00 impact or so to subscription revenue and then if we also adjust -- Also, the impact, um, it kind of seems like it could kind of be a game-changer, at least having it integrated with you and procurement.

Rob Bernshteyn -- Chief Executive Officer

Sure. Well, look, Coupa Payments and our vision for it has a host of solutions that are part of it. One example of a part of it is Coupa Accelerate, which is part of Payments. That's actually offered today. This is our offering centered around dynamic discounting and we're seeing customers adopt that capability. But there's a lot more to payments. One of the things we shared at the conference is our desire to get into transaction payments, card solutions as well as financing solutions, so these areas that we're currently in development around.

If you think about the core competency we have here at our company, it's really centered to some extent around user centricity and what we think is really unparalleled user centricity following the concept of the best UI is no UI. We want to take this same approach to payments. I agree with you. I think this could be very meaningful.

Our goal is to take payments to every core transaction within Coupa, so payments to procurement, payments to invoicing, payments against reimbursing against expenses and all of that being very flexible, having open connectivity to your bank or any card networks you might be using, looking for every rail of payments and trying to support every rail of payments so we can eliminate paper checks, we can digitize overall transactional payments, reduce the costs of payments and increase the visibility that a lot of these larger companies need for cross-border payments, and of course, something we've become very good at, which is integration back into accounting systems, which is an important part of payments.

So, what we've done at every one of these conferences for the last six conferences we've had is that we announce something that is in development and the next time we come back, we typically announce that it's generally available. That approach is something that's working very, very well for our customer community. We just by itself have been in this industry for as long as I have, I've often seen enterprise software companies either announce something that's already in GA or they announce something in development, but there's limited accountability to the actual rival of that product. We've done this very diligently in development at the first Inspire, the second one, either the European or next year's in early access and then in general availability. So, we'd like to do this in typical Coupa fashion, which is announce all these things at the same time to our customer community and how we're planning to do the same with payments.

Operator

And then next will be -- I'm sorry, go ahead.

Ross MacMillan -- RBC Capital Markets -- Analyst

No worries. Just one follow up to the payments transaction side, if you think about how the HR payroll guys worked when they can keep the funds overnight, is that anything that you guys can do or it's kind of not in the model?

Rob Bernshteyn -- Chief Executive Officer

Perhaps, but that's at a level of detail that I probably won't be getting into at the moment. I understand exactly what you're referring to. We've looked at that. We have a good understanding of how that works, without a doubt.

Operator

And next will be Ken Wang with First Analysis.

Ken Wang -- First Analysis -- Analyst

Thanks for taking my question. Just wondering -- can you offer any commentary on your underlying supplier growth during the quarter.

Todd Ford -- Chief Financial Officer

This is Todd. We give our supplier numbers out once we hit key milestones. As you may have noted at Inspire, we went over $4 million, which I believe is higher than any of the other players in the space. So, there's definitely a viral network there and we continue to onboard suppliers at a rapid rate. We'll typically give updates on that once we reach key milestones.

Ken Wang -- First Analysis -- Analyst

Got it. Thanks. Just on your spend under management figure, I believe you said it was $740 billion for the quarter. Just looking at the dollar, the absolute dollar increase quarter on quarter, it looked like it might have slowed down a little bit from last quarter. Any change in underlying composition there that we should be aware of?

Rob Bernshteyn -- Chief Executive Officer

Yeah. Thanks for the question. It's a very fair one. I wouldn't read into that at all. The only thing I would tell you, there is some seasonality related to Q4 onboarding, as you imagine a lot of larger companies tend to do a lot more of their spending toward the end of the year. So, we had a greater uptick in Q4 and then in Q1, you would expect that uptick to be a little bit slower, but nothing statistically significant to suggest anything is better or worse than we would expect.

Ken Wang -- First Analysis -- Analyst

Got it. Very helpful. Congratulations on a great quarter.

Operator

And next will be Brian Peterson with Raymond James.

Vince Celentano -- Raymond James -- Analyst

Thanks. This is Vince Celentano on for Brian. Going back suppliers, I know you had said that there's no particular target that you're aiming for, but is there perhaps an industry that you're seeing the largest pickup is is there any other characteristics you think are worth pointing out?

Rob Bernshteyn -- Chief Executive Officer

Not so much so. Our supplier network and the capability around that build itself. Our vision of the company is to help companies get smarter and better around the way they spend company money so they can get value out of every dollar that they're spending. That's where our energies are. We think there's a lot of information technology out there that's helping folks sell.

We don't think there's a lot of information technology that's highly effective and smart and focused and usable and comprehensive and can be implemented quickly with prescriptive insights to help buy side companies get smarter about the way they spend money. So, that's where we're spending our energies. The network itself is growing organically and nicely. The customers on the buy side continue to pay us fairly quarter in, quarter out.

As I mentioned to Ross's question, the new subscription revenue per customer continues to grow every quarter. I think that's pretty meaningful to understand in our world because we're not incumbents that have some sort of lock in on our customers. Our customers are with us because they're getting value and so, that's where our energies are focused.

Vince Celentano -- Raymond James -- Analyst

Got it. Traditionally the Coupa platforms provide a pretty significant ROI for customers. I was wondering how you see that base level trending over time in terms of there being additions to community intelligence through additional users and new products, products being offset by price increase?

Rob Bernshteyn -- Chief Executive Officer

It's incredible. If you think about the number of capabilities that have been brought into this product over the course of the last 24 months, if you look at the level of support we're able to provide our customers around the world, if you look at the best practices that we've enabled in terms of our SIs and how they deploy these solutions, if we look at resolution times on live transactional systems with millions of transactions running through it, all over the world 24/7, we continue to improve, become much more efficient and deliver more and more value.

That's seen in obviously savings on behalf of our customers. That's seen in spend under management levels continuing to grow with our customers. That's seen in risk reduction, supply risk reduction on behalf of our customers. This is what our customer community is all about, continuing to work with us to drive more and more value for their companies and all of those metrics that we drive around that continue to go up and to the right, which gets us more and more excited about this business every quarter.

Vince Celentano -- Raymond James -- Analyst

Great. Thank you very much.

Operator

And next will be Mark Murphy with J.P. Morgan.

Matt Coss -- J.P. Morgan -- Analyst

Hi. Good afternoon. This is Matt Coss on behalf of Mark Murphy. You guys mentioned some great wins this quarter, but I know there's some wins that you just can't publicize. I guess if you think about all the logos you closed this quarter and the last couple of quarters, how would you characterize the customer profiles in terms of brand recognition and scale versus a year ago. I'm just trying to get at are you increasingly seeing larger and larger customers. Along the same lines, are these deals increasingly led by partners or do they continue to be a mix between partner-led and direct.

Rob Bernshteyn -- Chief Executive Officer

Sure. Let me start by answering your question and tell you that every one of our customers matters to us. We go one customer at a time, whether they're a marquee logo, a large customer, a midsize customer. We're in this business to drive value to every one of our customers. We want to keep every one of our customers forever and we want to keep them fairly because we're delivering value for them on an ongoing basis.

But I will tell you without a doubt, in the last year, year and a half, this is very much a place where we went public and got to a place of legitimacy in the marketplace, the size of the customers, the marquee depth of the customers with us right off the bat versus doing smaller pilots to get into things has continued to move in the right direction for us.

And our partners continue to represent a pretty significant element of influence on those customers. So, while they're not directly handing us leads that we immediately close, roughly two-thirds of our deals are influenced in some way by a systems integrator or strategic partner of ours. So, very much that continues to look very good for us and it continues to rightfully push our organization to scale and grow globally.

Matt Coss -- J.P. Morgan -- Analyst

Great. And then you recently hired a Japan country manager. What does that market look like now in terms of your present and where do you expect the new country manager to take things or what's your vision for that region?

Rob Bernshteyn -- Chief Executive Officer

Well, we're in the very early days in Japan. We have very meaningful marquee accounts that we've closed that we want to leverage as a reference to build out that region. We think our product and our platform is really right for the Japanese culture as well as the market opportunity there. We considered going into Japan as far back as five years ago but didn't feel we were really ready for the level of quality on the platform that we required for the capabilities that we needed, but we're ready now and we're excited that Yuki is there and building his team and we look forward to some meaningful progress there.

As with everything we've done in Coupa, we expand organically. We don't put 15-20 people into a region and see if something happens. We go in, we get highly referenceable customers and we make them successful and we leverage their relationship with us and the real value we've created together to help us build out the market. We look forward to doing that in Japan.

Matt Coss -- J.P. Morgan -- Analyst

Thank you.

Operator

And next will be Joseph Vafi with Loop Capital.

Joseph Vafi -- Loop Capital -- Managing Director

Hey guys. Thanks for taking my questions and good results. Just kind of following up on some of the dialogue here in the Q&A and some of the momentum with SIs and brand recognition -- have you seen an impact to the sales cycle given all of these kind of positive influences to the business model? And then second would be to get an update on perhaps some of the middle market progress versus enterprise and how the development of those two markets is developing. Thanks.

Rob Bernshteyn -- Chief Executive Officer

Sure. We absolutely -- and we were touching on this earlier, of course -- we're absolutely seeing great support from the primary systems integrators in influencing our deals. There was a point, as you might imagine, a few years ago, where we were seen as innovative, up and coming, disruptive, where now a lot of these systems integrators are seeing us as really becoming more of a standard in this marketplace. So, in the case of all three of them, they've all done dozens of Coupa implementations and in virtually all cases, they've been highly successful.

So, there's really nothing stopping them at this point from wanting to push us into their existing customer relationships, which we're excited about. We're also looking at our prospective customer base and looking at those customers with the highest propensity to buy and focusing on those with those systems integrators so we can accelerate some of these sales cycles and more importantly accelerate some of these sales cycles and more importantly accelerate the go lives and drive for customers.

In terms of midmarket, we continue to see deal sizes increase and we continue to work on making that business more operationally efficient quarter in and quarter out. Not only are we growing deal sizes, but we're properly packaging our solution and driving implementation in terms of time from kickoff to go live so that it just become sa no brainer for that market and we're making progress there as well.

Joseph Vafi -- Loop Capital -- Managing Director

Thank you.

Operator

Next will be Joseph Foresi with Cantor Fitzgerald.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Hi. I was wondering with professional services stable to improving, how do you think about its impact on its numbers over the long term, particularly on the margin side?

Todd Ford -- Chief Financial Officer

Yeah, this is Todd. One of the key drags on our gross margin when we went public was professional service and we had a concerted effort to get that to break even. We believe that added about 300 basis points to our gross margins to get to break even. Over the long-term as we strive to get professional services margins from 10% to roughly breakeven, I believe it will have some impact to gross margins, maybe 100 to 200 basis points.

I think the main leverage from gross margin accretion is going to come from continued scale with what we're doing on the product side, what we're doing with the build out of our services and support organization, some of that in Pune, India, some of that here, and also the fact that we continue to see web hosting costs go down as that market is getting more commoditized with the competitive landscape there. I think the gross margin accretion will be driven primarily by those factors and help around the fringes with respect to professional services margin improvement.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Got it. You seem to be tracking well ahead of your targets. Can you talk about how we should think about them at this point? It looks like it could potentially be non-GAAP positive this year. Is that too ambitious?

Todd Ford -- Chief Financial Officer

No. We strive for excellence at Coupa. We obviously haven't guided to that yet, but if we continue to execute, it's not out of the realm of possibility.

Joseph Foresi -- Cantor Fitzgerald -- Analyst

Okay. And then one last one I'm going to sneak in. You talked about 50% of your business coming from I guess the non-core applications. Any relative financials you can give on core versus non-core or should we think about non-core as you just adding another product onto the system coming at the same margins? How should we think about that? Thanks.

Rob Bernshteyn -- Chief Executive Officer

Sure. I would strictly think about it from a new recurring revenue perspective. When we enter in a quarter, if you think about six years ago, one core transaction capability around automating the procurement process and then roughly three years ago, about 75% coming from that core. Towards the end of last year, we saw 50%, more than 50% coming from outside that core procurement capability.

So, that may be transactional expense management. That may be invoice processing. That may be supplier information management or contract lifecycle management. That may be sourcing optimization capability of spend analytics. Every one of these areas we are seeing real traction. I think the underlying theme here is that our customers are seeing business spend management platform that they can partner with us around for many years to come that can give them more and more value out of all of their spend transactions and the way they work with their suppliers. That's the underlying theme here and it's a very promising one.

Operator

And next will be Koji Ikeda with Oppenheimer.

Koji Ikeda -- Oppenheimer -- Analyst

Hi, congrats on the nice quarter and thanks for taking my questions. Question for Rob or Todd -- I wanted to touch on the conversations that you're having with potential customers. Now that you've been public for somewhere around 20 months here and awareness of the Coupa application continues to increase, all the while the spend management category continues to evolve, can you talk a bit about how your conversations with potential customers have maybe changed over the past two years? Are the spend management pain points more or less the same or are organizations thinking about spend management differently now, maybe more strategically than two years ago? Thanks.

Rob Bernshteyn -- Chief Executive Officer

Sure. So, maybe we split that down into the macro dynamic and what we're seeing in terms of the conversations for Coupa distinctly. Around the macro piece, we're clearly seeing companies more interested in these capabilities around spend management broadly because if they're growing quickly and they want to make sure they do it in a compliant way and they're set up for scale and they're already established businesses, they realize there's operational inefficiencies in the way they spend money and they've applied a whole host of approaches to customer relationship management and the human capital management capabilities.

They might be doing some upgrades around ERP, but around spend management, in many cases, they're still either using paper or they have a whole host of small boutique mom and pop deployed solutions all over the organization without one seamless way to get their arms around business spend management. So, that's driving some level of interest in looking at this area. We're there at the right time and at the right place with a solution that does address the vast majority of their business spend management challenges. It's delivered via cloud-based SaaS platform.

When they look at all the lagging indicators around analyst reports and conversations with folks that have been around the space for a while, they tend to bubble up to the surface, but when they really engage with us, that's when the magic happens because many of our customers simply want to work with us because they're excited about the culture of this company.

They believe that our company values are in line with their personal values. They're actually interested in getting to measurable results, rather than just doing a go live, a deployment of some technology solution. They realize this is a modern technology platform opportunity, a once in a lifetime shift from old technology solutions and on premise or simply hosted on premise solutions to modern technology value as a service platforms. And they engage with us at that level.

When we go in and start looking at the data and their existing business processes and we unearth what's possible together, it becomes a no-brainer, but the challenge continues to be for us to unearth those opportunities, to build greater awareness. As you mentioned rightfully, we haven't spent an enormous amount on awareness. We'll continue to manage that carefully, but obviously awareness is critical for us. As we continue to do that. We think we're well set up to be the primary leader of this category we feel a responsibility to develop.

Koji Ikeda -- Oppenheimer -- Analyst

Thanks for taking my questions.

Operator

Next will be Eric Lemus with SunTrust Robinson Humphrey.

Eric Lemus -- SunTrust Robinson Humphrey -- Analyst

Hey, guys. Thanks for taking my question. I just had one. We're a little bit after the user conference and there was a fair amount of buzz during the conference with new products, new functionality, some readily available and some still in the works. But can you just talk about the feedback you were getting from some of your customers with regard to the announcements you made during the conference? What's the buzz and what's getting people excited?

Rob Bernshteyn -- Chief Executive Officer

Sure. Well, the feedback was very positive. But besides that, we ask our customers not to judge our capability and our strategy. We ask them to be part of that. We've been building a customer community now that has many people around the world that are professionals that can partake in the strategy. We've gotten some very interesting and very meaningful feedback to how we can continue to develop our community intelligence initiative, what are the use cases where community intelligence would be of greatest value to them.

When it came to our conference just last year, we asked them to bring their thoughts and ideas to this. When we saw that we already encoded many of those ideas into the platform and made them available a year later, many of them realized the power of having this being one technology platform, one code line for all customers and they're engaging with us on this. That's the most exciting part of what came back in terms of feedback.

Of course, we continue to develop certain areas that we need to get deeper in terms of functional richness. That's just par for the course. But the magic is really happening around the periphery, where our customers ourselves are engaging in the design and setup of what is the world's next business technology, business spend management platform for companies of all sizes.

Now, if I were to break that down for you by every product area, I'd get you deep into feature, function, idea, and that's not the right place to do that on a call like this, but happy to discuss it any time as well.

Eric Lemus -- SunTrust Robinson Humphrey -- Analyst

Great. Thanks.

Operator

Next will be Pat Walravens with JMP Securities.

Pat Walravens -- JMP Securities -- Managing Director

Great. Thank you. Congratulations, you guys. Todd, one for you and then one for Rob -- Todd, would you say the goal is to build a company capable of sustaining 30%+ topline growth?

Todd Ford -- Chief Financial Officer

Yeah. You know, we're still running the business based upon the three core tenets we outlined at the analyst day, which is 30% topline growth for the next 5+ years and primarily focused on driving subscription revenue. We do have a professional services element. Our strategy is to partner with the SIs. So, we do see most of that growth come in from subscriptions.

When we look at our go to market teams and how we're building it, we are definitely building it to sustain that 30% growth and do it in a very responsible way with reasonable sales efficiency and kind of the key metrics we track -- magic number, LTV to CAC, while continuing to show operating margin at the bottom line with respect to operating income and free cashflow.

Pat Walravens -- JMP Securities -- Managing Director

Great. Thank you. Rob, big picture for a second -- how do we think about the potential for blockchain in spend management and what are the things that might be holding that back?

Rob Bernshteyn -- Chief Executive Officer

Yeah, to be honest, Pat, I don't feel like this is a good o paper for me to share a lot of the views on that. I think a lot of that is still very much developing and very hard to call. I don't feel ready personally to make a very direct call as to how that's going to play out. I think there's absolutely very distinct use cases where blockchain is going to be critical, where you think about distributed ledger, for example, it can really shake up some of the big incumbents in the enterprise software world and obviously the use cases around payments. But I'm no tin a position yet to share a very distinct point of view on it, but I'm happy to follow up with you on that in the coming earnings call, for sure.

Pat Walravens -- JMP Securities -- Managing Director

Okay. Let me rotate to something you probably are. So, if you look at your AI acquisitions, like Deep Relevance and Spend360, how are those working out?

Rob Bernshteyn -- Chief Executive Officer

Very, very well. One of the things we've discovered in granular fashion is the power of our data. This data is something that is not just value to individual customers, but when normalized and sanitized and looked at in the context of certain critical use cases, applying artificial intelligence to get you there, we're in a position now to provide prescriptive intelligence to individual customers around many of the product areas we discussed at the conference and some that I discussed in my earlier script for the earnings call.

So, detecting fraud as it pertains to every transactional area, from procurement to invoicing, identifying opportunities for optimizing spend due to, for example, contracts are about to expire and suppliers you ought to be working with, understanding how your commodities are shaping up. Who are you actually spending with and your top ten suppliers and who are best in class companies around the world spending with and perhaps having better results? Supplier risk, commodity insights, cross-company business, and benchmarking insights -- so, we're really just scratching the surface on what's possible.

The reality is we're already scratching it in the sense that many of our customers have deployed Coupa leveraging community intelligence. So, you'll continue to hear more and more about this from us, simply because it makes a great deal of sense and our customer community is asking for it.

Pat Walravens -- JMP Securities -- Managing Director

Thank you.

Operator

And at this time, there are no further questions. This concludes the conference for today. We do thank you for joining us. You may now disconnect.

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